Promoters of small & mid cap firms take advantage of market meltdown

NEW DELHI: It���s not just the portfolio investors who were bottom-fishing in the market. Promoters of a bunch of mid and small-cap firms have taken advantage of the market meltdown to buy shares of their own companies from the open market through the creeping acquisition route.

Promoters raise their equity stake for various reasons. Typically for shoring up equity holding or infusing funds into the company, the owners go for preferential allotment of shares or convertible instruments such as warrants.

The creeping acquisition route of buying shares, for which there is a mandatory ceiling in a particular year, entails buying shares from the secondary market is typically done when promoters feel the price in the market is low enough to justify such a purchase. Some firms with healthy cash reserves even go for equity buybacks which in turn tends to increase promoter holding while repricing undervalued stock.

According to stock market disclosures the firms have bought shares of varying proportions in the open market. For instance, one of the promoter group entity of NIIT bought 0.27% stake from the market. The transaction was done at a price 15-20% cheaper than its recent highs.

While the quantum of purchase was not too significant, it comes at a time when promoter holding in the IT solutions firm had been coming down over time. Promoter group holdings slipped from more than 40% in December 2005 to just about 30.14% on December 31, 2007.

Nor was this one off case. Promoters of Gujarat NRE Coke also inched up their holdings by a similar proportion(0.25%). In their case also the promoters holding had come down over the last one year from 46% in December 2006 to 41% in December 2007.

For others its been a mixed picture. For instance, in case of basmati rice company KRBL, one of the promoter group entities has been buying and selling shares of KRBL at the fag end of 2007. However, the firm started buying shares consistently since January 30 and, as of today, has added 0.7% stake over 10 days.

Maharashtra Seamless promoters have added 1.42% stake last week through open market purchases. The transactions come at a time when the company is mulling a preferential allotment of warrants to the promoters.

Incidentally, the proposal for the stock split which was mooted last year and was to be implemented soon, has been postponed as is the EGM for approving the allotment of warrants to the promoters. This is not surprising, given that the scrip has dropped about 50% in value over the last one month.

Among others KS Oils promoter Ramesh Chand Garg increased his stake in the edible oil company by 1.71% since January 21, the day the market took the first big hit. Another company where the promoter bought 0.33% stake is Uflex (formerly Flex Industries).